Increased Funding for Public Colleges Can Improve Students’ Academic Outcomes — and Their Credit Scores

Public colleges and universities brace for budget cuts as the pandemic-induced downturn threatens state coffers, a key source of school funding.

And if the past is any indication, these funding cuts could have consequences for students, according to new research.

At public four-year colleges, increases in state funding are associated with students taking less time to graduate and accumulating less student debt, according to a working paper released by the National Bureau of Economics. Research this week.

The paper, by economists from the Federal Reserve Bank of New York, Cornell University and the University of California, Los Angeles, finds that for students attending two-year public colleges, an increase in State funding increases the likelihood that they will transfer to a four-year school and earn a bachelor’s degree.

Additionally, research shows that among these students, higher levels of government funding are associated with higher credit scores and the likelihood of living in higher-income neighborhoods after graduation.

“State appropriations are important to student achievement,” said Michael Lovenheim, chair of Cornell’s economics department and one of the paper’s authors.

This discovery probably has implications for the next few years.

Following the Great Recession, states cut funding for higher education institutions. In 2018, state funding for public two- and four-year colleges was still $6.6 billion below 2008 levels, according to the Center on Budget and Policy Priorities. Historically, following these cuts, public funding increases slowly as the economy recovers and on average does not return to pre-recession levels, the document says.

As state lawmakers watch coffers depleted by lower sales and income tax revenues this year, funding for public colleges and universities is likely to be on the chopping block. With the collapse of stimulus talks in Washington, colleges and universities seem unlikely to get more help from the federal government.

Given these trends, the future “doesn’t look good,” for students, Lovenheim said. “That’s what our results suggest.”

For every additional $1,000 per student a state spends on its public four-year colleges, the likelihood that a student attending one of these schools will graduate by age 25 increases by 1.5 points. percentage, according to their research.

An additional $1,000 in credits per student also decreases the likelihood that a student attending four-year college will go into debt by about 2 percentage points, and the amount they borrow also decreases. The research indicates that a $1,000 increase in state appropriations also reduces the amount of money these students borrow at age 22 by $640 and the amount they borrow at age 35 by $5,363.

Community college students fare differently than their four-year public school counterparts, but they still seem to benefit from increases in state funding.

For every additional $1,000 per student allocated by the state while a community college student is enrolled, the likelihood of transferring to a four-year school increases by 3.5 percentage points and the probability that he obtains a baccalaureate increases by 2.5%. points, the paper finds.

Community college students tend to borrow more when state appropriations increase, the research shows, but that’s likely because they’re pursuing more education. The likelihood of them being delinquent or defaulting on their loans decreases as government credit increases.

Additionally, a $1,000 increase in state credits is associated with a 13-point increase in community college students’ credit scores and a $3,359 increase in the average income of the zip code where they live.

The researchers were able to observe these links through a unique fusion of anonymized enrollment records from the National Student Clearinghouse and data from credit reports from the New York Fed Consumer Credit Panel.

In addition to highlighting the general consequences of state funding cuts on public colleges, the research indicates that these cuts will likely exacerbate the inequality already present in the higher education system.

Community colleges and less selective public four-year colleges educate a wide range of American students and especially low-income students and students of color. They are also likely to suffer more intensely from state funding cuts.

This dynamic appears in the working document. The impact of state funding cuts on public four-year schools is to increase student debt loads, but this does not appear to affect academic outcomes other than increasing time to graduation . This is not the case at community colleges, which have less leeway to increase tuition. Instead, a drop in state funding may mean cutting back on the kinds of academic and support services that help students get to school and school.

“The change in the quality of education is a major factor that has greater impacts not only on community college students’ academic outcomes, but actually translates to their financial outcomes later in life,” said said Rajashri Chakrabarti, senior economist at the New York Fed. and one of the study’s authors. “This has clear implications for inequality.”

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